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Management's Discussion and Analysis and Financial Statements

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Management's Discussion and Analysis and Financial Statements Management’s Discussion and Analysis and Financial Statements December 31, 2011 ONEX AND ITS OPERATING BUSINESSES Onex is a public company whose shares trade on the Toronto Stock Exchange under the symbol OCX. Onex’ businesses have assets of $41 billion, generate annual revenues of $37 billion and employ approximately 246,000 people worldwide. ONEX ONEX ONEX ONCAP II ONCAP III ONEX ONEX DIRECT PARTNERS I PARTNERS II PARTNERS III REAL CREDIT ESTATE PARTNERS PARTNERS The investment in The Warranty Group is split almost equally between Onex Partners I and II. The investment in ResCare is split almost equally between Onex Partners I and III. The investment in Casino ABS is split approximately 80%/20% between ONCAP II and III, respectively. Throughout this report, all amounts are in U.S. dollars unless otherwise indicated. Table of Contents 5 Management’s Discussion and Analysis 152 Shareholder Information 76 Consolidated Financial Statements CHAIRMAN’S LETTER Dear Shareholders, The current presidential primary season in the United States has brought more than usual attention to the private equity industry and, of course, not all of it has been good. We can’t speak for the entire industry, but we’re very proud of what we do here at Onex. We are and have been active owners and builders of some of the world’s greatest companies. Our companies make products used by millions of people. When you go for a dental check-up, chances are good we’re helping with the diagnosis, when you fly off for a holiday – you’re probably in a plane we helped build, and when your children take the bus to school – the gears on the bus shift safely with one of our transmissions. We could go on and on. Even though we own many businesses, we don’t just put money in stock certificates. We’re not passive inves- tors or traders; that’s not our business. We are active owners working with talented and aligned leadership to turn a good company into a great one. Oftentimes when we buy a business, it’s been part of another, larger entity and didn’t get the capital or attention it deserved. With its management, we lay out a plan for improvement and growth (we’ve never seen fortunes made with shrinking businesses). When we feel that our work is completed and our ownership becomes more passive, we think about realizing on some of our value created. That’s what we do for you – our share- holders – and for our limited partners, who have asked us to manage about $9 billion, most of it coming from public employee pension plans. The hardest part of our work is selling a company we love. We have wide ranging debates on the topic and get views from the youngest investment professional and the most seasoned amongst us. This year we sold two great companies: Husky International and Emergency Medical Services, generating total proceeds of $2.7 billion and multiples of 2.9 and 7.8 times on invested capital, respectively. These were obviously great outcomes for the companies’ employee shareholders, Onex and our limited partners. We could have owned either business longer, but we felt that our role as an active owner was largely complete, hence the decision to sell. We wish both companies much continued success in the years to come. In addition to the two sales above, we had some other highlights through the course of the year: • We successfully completed the fundraising for ONCAP III, with capital commitments of C$800 million, including C$520 million from our Limited Partners; • ONCAP was very active in the mid-market private equity space, investing a total of $324 million in four operating companies across a variety of sectors; • Onex Partners’ and ONCAP’s private companies provided Onex with returns of 15 percent and 12 percent, respec- tively, in 2011; • Our businesses paid down approximately $1.3 billion of debt and distributed approximately $470 million; • Taking advantage of stronger capital markets in the first half of the year, Onex’ operating businesses raised or refinanced approximately $3.4 billion of debt; and • Onex and Onex Partners III invested $871 million and acquired a controlling interest in JELD-WEN, one of the world’s largest manufacturers of doors and windows. We’re looking forward to 2012. We have $1.3 billion of cash and cash-like investments and $2.5 billion of uncalled third-party capital. We hope to find our next great business, give it a capital structure suitable for growth and give its employees and leadership team an opportunity to participate with us in value creation. That’s our business, and we’re proud of it. On behalf of the Onex team and our 246,000 employees worldwide, thank you for your continued support. [signed] Gerald W. Schwartz Chairman & CEO, Onex Corporation Chairman & CEO, Onex Corporation Onex Corporation December 31, 2011 1 ONEX CORPORATION Over 27 Years of Success Founded in 1984, Onex is one of North America’s oldest and most successful private equity firms committed to acquiring and building high-quality businesses. As an active owner, the Company has built more than 70 busi- nesses, completing approximately 340 acquisitions with a total value of approximately $44 billion. Onex’ long-term project returns have generated a multiple of invested capital of 3.3 times from its core private equity activities since inception, resulting in a 29 percent compound IRR on realized, substantially realized and publicly traded invest- ments. The Company is guided by an ownership culture focused on achieving strong absolute growth, with an emphasis on capital preservation. With an experienced management team, significant financial resources and no debt at the parent company, Onex is well-positioned to continue to acquire and build businesses. Onex manages its proprietary capital as well as capital entrusted to it by third-party investors from around the world, including public and private pension funds, sovereign wealth funds, banks, insurance companies, and fund of funds managed by other asset managers. Onex’ Capital How Onex’ $4.5 billion of Capital is Deployed Onex manages its $4.5 billion of proprietary capital largely at December 31, 2011 Large-cap Private Equity 57% through its two private equity platforms: Onex Partners Private 48% (for larger transactions) and ONCAP (for mid-market Public 9% transactions). The Company also invests through Onex Real Estate Partners and Onex Credit Partners. Onex’ long-term goal is to grow its proprietary capital by at least 15 percent per annum, and to have that growth reflected Cash and Near-cash Items 29% in its share price. Onex’ proprietary capital per share grew by 8 percent over the last 12 months. Mid-market Private Equity 7% Onex Credit Partners 3% Third-party Capital Onex Real Estate Partners 4% Investments are valued at fair value as at December 31, 2011 with the exception In addition to the management of Onex’ proprietary capi- of an investment that is valued based on the last third-party investment. tal, Onex is entrusted with third-party capital from institu- tional investors around the world. The Company currently The Components of Onex’ $9.1 billion of Third-Party Assets under Management at December 31, 2011 manages $9.1 billion of invested and committed capital on behalf of its investors and partners, of which 89 per- Onex Partners III 43% cent relates to its private equity platform and the balance to Onex Credit Partners. The management of third-party capital provides two significant benefits to Onex. First, Onex receives a committed stream of annual management Onex Partners II 24% fees on $8.0 billion of third-party assets under manage- ment, substantially offsetting ongoing operating expenses. Onex Partners I 11% Second, Onex has the opportunity to share in the profits of Onex Credit Partners 11% its third-party investors through the carried interest par- ONCAP 10% Other 1% ticipation. Carried interest, if realized, can significantly Assets under management include capital managed on behalf of co-investors enhance Onex’ investment returns. and the management of Onex and ONCAP. 2 Onex Corporation December 31, 2011 HOW WE ARE INVESTED All amounts, unless otherwise noted, are in millions of U.S. dollars except per share data. This How We Are Invested schedule, which is prepared quarterly and is included in the Company’s earnings releases, details Onex’ $4.5 billion of proprietary capital and provides private company performance and pub- lic company ownership information. This schedule includes values for Onex’ private companies based upon estimated fair values and as such are non-GAAP measures. While it provides a snapshot of Onex’ net assets, this schedule does not fully reflect the value of Onex’ asset management business as it includes only an estimate of the unrealized carried interest due to Onex based upon the current values of the investments and allocates no value to the management company income. As at December 31, 2011 Proprietary Capital Private Equity Onex Partners Private Companies $ 1,847(1) Public Companies 235(2) Unrealized Carried Interest on Onex Partners Investments 96(3) ONCAP 319(4) Direct Investments Private Companies 204(5) Public Companies 130(2) 2,831 Alternative Assets Onex Real Estate Partners 180(6) Onex Credit Partners 100(7) 280 Other Investments 81 Cash and Near-Cash 1,302(8) Onex Corporation Debt – $ 4,494 Proprietary Capital per Share (Canadian dollar equivalent – C$37.47) (9) $ 36.85(9) Significant Public Companies Shares Subject to Shares Held Carried Interest by Onex Closing Price Market Value of As at December 31, 2011 (millions) (millions) per Share(10) Onex’ Investment
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